Colorado has been one of the most vocal states against the proposed merger between grocery giants Kroger and Albertsons — the operators of the state’s King Soopers and Safeway stores.
Amidst pressure from states such as Colorado and the federal government, Kroger and Albertsons announced in April it would divest 100 more stores than originally planned to ease worries from regulators that their $24.6 billion deal would harm American consumers.
But the grocers' had a unique agreement for its stores in the Centennial State.
Colorado is one of two states— the other being Arizona— where Kroger plans to license the Safeway brand to another grocer.
The potential new owner, if the deal goes through, would be New Hampshire-based C&S Wholesale Grocers. Krogers and Albertsons plan to divest 91 stores across the state, nearly all of Albertsons’ 105 stores, to the parent company of Piggly Wiggly and Grand Union Supermarkets.
The plan would introduce a new grocer into the Colorado market in the absence of Albertsons that has no experience operating a retail footprint in the state – which Attorney General Phil Weiser expressed concerns about when he announced his office would sue to block the merger.
Colorado AG sues to block Kroger-Albertsons merger
In a video conference Thursday, an Albertsons consultant spoke with Colorado reporters to discuss the impacts of this plan with the state. Scott Moses is the head of grocery, pharmacy and restaurants investment banking at Solomon Partners, and was hired by the grocer as a third-party expert on the effects of the deal.
“To correct mistakes by some prior divestiture buyers,” Moses said, “they're either buying or licensing local banners to make sure they maintain customer continuity, loyalty and performance.”
The attorney general’s concerns begins with the 2015 deal that put the Safeway brand into Albertsons’ possession in the first place.
Albertsons had to divest 168 stores to get the Federal Trade Commission’s approval. Haggins bought the stores and went bankrupt months after the sale, only for Albertsons to buy many locations back. The divestitures didn't happen in Colorado, though Weiser’s office said the state did see effects of store closures from that merger leaving some local communities with fewer grocery options to this day.
One key difference from Haggins’ takeover of divested stores and the proposed Kroger-Albertsons plan is that it was a much smaller chain putting its name on stores in states where customers had little knowledge of the brand, Moses said. And the grocer didn’t have enough money to market themselves.
“As a consequence, customers were confused,” Moses said. And sales fell quickly.
C&S Wholesalers is keeping the Safeway name in Colorado and Arizona because the brand has strong loyalty in the state, he added.
And while C&S Wholesalers doesn’t operate stores in Colorado and most of the western states where divestitures are happening, Moses said, it does have a vast national supply chain network giving it more structure to be sustainable in new markets.
Still, it’s unclear how C&S Wholesalers would operate the Safeway brand in Colorado and Arizona to compete against Kroger, which would take over Safeway stores in other states.
A spokesperson for C&S Wholesalers told the Denver Gazette it wouldn’t share more information until the deal was approved and finalized.
“The vast majority of folks who live in those markets are not going to know the differences as to where that banner may be used in other states,” Moses said.
US sues to block merger of grocery giants Kroger and Albertsons
Meanwhile, the U.S. Justice Department defended Colorado’s case against the merger last month after Kroger and Albertsons tried to argue the state’s lawsuit was undermining federal jurisdiction.
“Defendants are incorrect to categorically assert that Colorado’s lawsuit undermines the dual antitrust enforcement regime set forth in the federal antitrust laws and parallel state laws,” the department said in a filing.
The Justice Department added that Colorado has the right to assess if the merger’s effects will lessen competition within the state regardless of the FTC’s lawsuit also attempting to block the merger.
Kroger and Albertsons have pushed back against claims their merger would hurt competition and argue it's a necessary step to compete against mega-retailers such as Walmart and Amazon.
Though that will be determined by either state or federal courts.
“An injunction blocking a transaction would be appropriate if a plaintiff, such as Colorado, showed a reasonable probability that Kroger’s acquisition of Albertsons would substantially lessen competition in at least one geographic market within Colorado,” the Justice Department said, “irrespective of the effects in other geographic markets.”
